FRS 116: Leases – A Quick Overview

FRS 116 Leases – A Quick Overview

Leases are something that most companies cannot get away from. When you run a business, you may need to rent an office, some machines and equipment, and so on. When you are dealing with the accounting transactions related to leases, you need to comply with Financial Reporting Standard 116. It is a standard that applies to the annual reporting period starting from 1 January 2019. If you have any doubts on this standard or you need help in making sure that your company’s leases comply with it, feel free to contact an accounting firm in Singapore and get assistance from the professionals.

FRS 116 has explained the principles that business owners (Also see How Can Business Owners Retain Star Performers?) need to follow when they recognise, measure, present and disclose the leases in a clear and detailed way. This standard aims to make sure that both lessees and lessors provide information relevant to the lease in a way that can represent those transactions faithfully. With this information, the users of the financial statements will be able to examine the effects that the leases may bring to a company on its cash flow, its financial position as well as financial performance.

When applying FRS 116, a company should consider the contract’s terms and condition, as well as all other related circumstances and facts related to it. It should also apply this standard to contracts that have similar traits and under similar condition consistently.

FRS 116 is applicable to all leases, which include leases of right-of-use assets for a sublease. However, there are some exceptions to this. The exceptions include the leases for the use or exploration of natural gas, oil, minerals as well as other similar resources that are non-renewable, and the leases of biological assets which are in the scope of FRS 41 Agriculture. Besides, the licenses of intellectual property that a lessor grants to a lessee in the scope of FRS 115, and the service concession arrangements in the scope of INT FRS 112 do not need to follow the requirements stated in FRS 116.

The last exception to this standard is the rights that a lessee holds under licensing agreements in the scope of FRS 38 for objects like copyrights, video recordings, manuscripts, plays, motion picture films and patents. Other than the items mentioned above, a lessee can apply FRS 116 to the leases of other intangible assets. However, doing so is not compulsory.

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